Bayer Said to Explore Bid for $43 Billion Seed Company Monsanto

May 13, 2016

May 13, 2016 by Bloomberg

Bayer AG is exploring a potential bid for U.S. competitor Monsanto Co. in a deal that would create the world’s largest supplier of seeds and farm chemicals, according to people familiar with the matter. The German firm has held preliminary discussions internally and with advisers about buying Monsanto, which has a market value of about $43 billion, said the people, who asked not to be named because the deliberations are private. Bayer, which is valued at about 79 billion euros ($90 billion), has discussed how to finance a deal including potential asset sales, the people said. No final decision has been made and the Leverkusen-based company could decide against a bid or pursue other transactions with Monsanto, including joint ventures or asset sales, the people said.

Representatives for Bayer and Monsanto declined to comment. Putting the world’s largest seed maker together with the German company that invented aspirin would bring together brands such as Roundup, Monsanto’s blockbuster herbicide, and Sivanto, a new Bayer insecticide lethal to aphids and whiteflies but not to bees, as well as seeds for crops ranging from corn to sugar cane. Such a deal would face regulatory scrutiny amid an unprecedented wave of consolidation in the crop-chemicals industry. Government regulators globally have nixed more than $20 billion in deals this week, including CK Hutchison Holdings Ltd.’s bid to buy Telefonica SA’s O2 wireless carrier in the U.K. and the merger of Staples Inc. and Office Depot Inc.

Regulatory Scrutiny

In crop chemicals, competition authorities are investigating the $130 billion merger between Dow Chemical Co. and DuPont Co., while national security officials in the U.S. are weighing China National Chemical Corp.’s bid to acquire Syngenta AG of Switzerland for $43 billion. A Monsanto-Bayer combination isn’t likely to raise significant antitrust hurdles because there’s little overlap in the companies’ products, according to analysts and legal experts. "From the antitrust side, I don’t think there’ll be many issues," said Lutz Krafft, a senior adviser at consulting firm ChemAdvice GmbH who once worked at Bayer.

Previous Talks

Monsanto rose 9.2 percent to $98.65 at 12:23 p.m. in New York after news about Bayer’s interest and a report from StreetInsider late yesterday that BASF SE is working with advisers to explore a takeover offer. The shares earlier rose as much as 12 percent, the largest gain since 2009. Bayer shares fell 4.9 percent to 95.15 euros in Frankfurt, the biggest decline since December. St. Louis-based Monsanto has explored possible deals with Bayer as well as German competitor BASF, people familiar with the matter said in March. Bayer and Monsanto have discussed a number of options from a full combination to the German firm selling all or part of its crop sciences business, as well as joint ventures, the people said at the time. When Bayer raised the idea of a full takeover of Monsanto in March, the U.S. firm said it was not interested in selling, and it sees itself as more of an acquirer, two of the people said this week. If Bayer goes ahead with a bid, it would raise pressure on BASF to consider an offer, the people said. A spokeswoman for Bayer declined to comment on potential deals.

Farm Income

Monsanto is grappling with a global slump in agricultural commodities after its offer to buy Syngenta for about $46.2 billion was spurned last year. Sales in the quarter ending in February declined 13 percent from a year earlier to $4.53 billion. Corn and soybean prices fell in the last three calendar years, cutting net farm income in the U.S. and hurting demand for everything from tractors to weedkiller. A deal with Bayer would help the company reduce its reliance on the agriculture industry, while Monsanto would strengthen Bayer’s seed business, one of the company’s priorities. Bayer said last month that it planned to introduce new genetically modified soybean seeds in Brazil to challenge Monsanto’s dominance. For Bayer, the talks come as the company is transitioning to new leadership. Strategy head Werner Baumann took over from CEO Marijn Dekkers this month. Dekkers reshaped Bayer, increasing its focus on life sciences by buying Merck & Co.’s over-the-counter medicines business and divesting a stake in its plastics unit. Bayer’s market value has almost doubled since Dekkers took the helm at the end of 2010 as the 152-year-old company sold more prescription drugs for eyes and hearts and added consumer brands like Claritin.